9911796707
TMI Blog2005 (3) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... s made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods. (3) The State Government may, for the purpose of fixing the rate of abatement under sub-section (1), take into account the amount of sales tax and other local taxes, if any, payable on such goods. Explanation.-(i) Where on the package of any goods different retail sale prices are declared with reference to different areas, the retail sale price declared with the reference to the area within the State in which it is sold shall be deemed to be the retail sale price for the purposes of this section. (ii) Where on the package of any goods different retail sale prices are declared with reference to different areas and none of the areas falls within the State, the maximum of such retail sale prices shall be deemed to be the retail price for the purposes of this section." The present writ petition has been filed to challenge the constitutional validity of the aforesaid provision. It envisages levy of sales tax on any transaction of sale of notified goods not on the actual price of consideration which is paid or becomes payable by the buyer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to the retailers and not by retailers to end consumer when alone maximum retail price can be charged. Under the Act of 1976 and under the provisions of the Drugs (Price Control) Order, 1995 issued by the Central Government under section 3 of the Essential Commodities Act, 1955, the maximum retail price is determined in the case of Scheduled Formulations only. But maximum retail price is required to be displayed on the label of container as well as package in respect of all the drugs whether scheduled or non-scheduled formulations. It has been urged that by and large the first point sale in State of Rajasthan takes place between C and F agents/consignee agents/depots on the one hand as sellers, registered dealers and the wholesalers and in case of inter-State transactions such first point sale takes place between distributors and wholesalers at the negotiated and contracted price agreed to between them (respective buyers and sellers) which obviously cannot exceed the printed retail price minus retailer's margin and wholesaler's margin. With the aforesaid premise, it has further been contended that the mention of price on the package under the aforesaid provision is the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax the sale at maximum retail price which is neither a consideration paid nor payable for the completed sale. The provisions have also been challenged on the ground of vagueness. Defending the validity of the provision, it has been contended by the learned Advocate-General and learned Additional Advocate-General that what is to be measure of tax on a sale is within the domain of the State Legislature. Under the impugned provision tax is levied on a completed sale within the meaning of section 4 of the Sale of Goods Act, 1930. However, in what manner the charge is to be levied is a matter of details which can be worked out by legislation. The fact that the maximum retail price is to be determined statutorily and the State Legislature has taken into account the fact that the actual consideration at the first point tax may be less than the maximum retail price that may be charged ultimately from the consumer at the last point sale as provided for abatement of maximum retail price by reducing therefrom the sum at prescribed rates of abatement, for the purpose of levy of tax, it provides sound basis for uniform liability in the State on such transactions. The levy of tax with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the stage has been reached when the seller can recover the price under the contract." The aforesaid decision while making it clear that subject "tax on sales of goods" in entry 48 of List II of the Seventh Schedule of the 1935 Act providing for legislative field of sale of goods ought to be confined to levy of tax on sales of goods as defined in the Sale of Goods Act, 1930 and in substance, it is a levy on price of goods and the State Legislature does not have power to enlarge the definition of "sales" by creating a legal fiction and tax sales which have not come into existence. The next case which falls for consideration and relied on by the learned counsel for the petitioners is State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560. The Constitution Bench of the Supreme Court considered in this case the construction of entry 48 in List II of the Seventh Schedule to the Act of 1935 tax on the sale of goods which is in pari materia with entry 54 in List II of the Seventh Schedule to the Constitution of India. The question had arisen in a case arising under the Madras General Sales Tax Act, 1939 as amended by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement." The State Legislature does not have legislative competence to give the expression "sale of goods" extended meaning and to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within Act of 1930. Tax on value of the material used in construction of building was held to be ultra vires. The decision in Firm of M/s. Peare Lal Hari Singh v. State of Punjab [1958] 9 STC 412 (SC) also relates to imposition of tax on supply of materials used in building contracts and the court has followed its decision rendered in Gannon Dunkerley & Co. [1958] 9 STC 353 (SC); AIR 1958 SC 560 and held that the expression "sale of goods" in entry 48 in List II of the Seventh Schedule of the Government of India Act, 1935, has the same import which it bears in the Sale of Goods Act, 1930. The principle was reiterated in Bhopal Sugar Industries Ltd., M.P. v. D.P. Dube, Sales Tax Officer, M.P. [1963] 14 STC 406 (SC), where the question arose whether giving extended definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for present purposes, considering the validity of Explanation 1 noticed above, the court drew distinction between sale on hire-purchase agreement on the one hand and the sale in which the price is to be paid later by instalments on the other pointing out that,- "The essence of a sale is that the property is transferred from seller to the buyer for a price, whether paid at once or paid later in instalments. On the other hand, a hire-purchase agreement, as its very name implies, has two aspects. There is first an aspect of bailment of the goods subjected to the hire-purchase agreement, and there is next an element of sale which fructifies when the option to purchase, which is usually a term of hire-purchase agreements, is exercised by the intending purchaser." With this distinction in mind, the Explanation to the extent it permitted levy of tax even before the option had been exercised to purchase the goods and the property was divested from seller to vest in the purchaser, was held to be ultra vires as the State Legislature was not competent to extend the meaning of word "sale" used in entry 54 of the Seventh Schedule to the Constitution which corresponds to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle on the date the hirer exercises his option and becomes the owner of the vehicle after fulfilling the terms of the agreement . . . . it would be for the sales tax authorities to decide as best they can the value of the vehicle on the date the option is exercised and the property passes to the hirer. There may be two ways of doing it. The sales tax authorities may split up the hire into two parts, namely, the amount paid as consideration for the use of the vehicle so long as it was the property of the owner, and the payment for the option on a future date to purchase the vehicle at a nominal price. If the first part is determined the rest would be towards the payment of price." This case accepted two principles. Firstly, that hire-purchase agreement contains two sales and tax in case of later sale does not become payable until option to purchase is exercised by the hirer and a completed transaction comes into existence and secondly, price content of second sale must be determined by excluding therefrom hire content paid or payable by the hirer for use of thing before exercise of option when title passes to him under a competed sale. The tax can be levied with reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and preparations by each one of the clubs to its members. In State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC); AIR 1972 SC 1131, the Supreme Court adopted the concept of the English Law that "there is no sale when food and beverages are supplied to guests residing in hotels". It was pointed out that supply of meals was essentially in the nature of service provided to them and could not be identified as a transaction of sale. The contention of the Revenue that such transaction can be split into two parts; one of the service and other of sale on food stuffs was rejected. Considering the provisions of the Punjab General Sales Tax Act, 1948 a Constitution Bench of the Supreme Court held that the transaction between a hotelier and a visitor to his hotel whereby the former receives the latter for lodging in his hotel is essentially a contract of service and where in the performance of the service and as part of the amenities incidental to that service, the hotelier serves meals at stated hours, the transaction is not sale. Thus, reiterating that the essential elements of sale of goods, i.e., to transfer any goods for value received or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permit holder has no option but to supply the stated quantity of goods at the controlled price. Adverting to the essential elements of sale of goods for the purpose of levy of tax, the court referring to settled principle that subject of tax is a contract of sale of goods, held that so long as mutual consent is not totally excluded in any dealing in law it is a contract. The court approved the principle enunciated in Indian Steel & Wire Products Ltd. v. State of Madras [1968] 21 STC 138 (SC); AIR 1968 SC 478 and in Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); AIR 1968 SC 599. In the former case, the court observed that though the controller fixed the base price of the steel products and determined the buyers, the parties were still free to decide the other terms of the bargain, as for example, the time and date of delivery and the time and mode of payment and therefore, it could not be said that there was no agreement between the parties to sell and buy the goods. It was held that though the area within which it was possible for the parties to bargain was greatly reduced on account of the Iron and Steel Control Order, it was not correct to contend that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving extended meaning to the expression "tax on sale or purchase of goods" to include certain transactions which had been held to be not falling within the purview of sale in the decisions referred to above. Clause (29A) of article 366 included within definition of tax on sale or purchase of goods: (i) a tax on the transit otherwise than in the form of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a tax on the transfer of property in goods (whether as goods or in some other form) involved in execution of works contract; (iii) a tax on delivery of goods by hire-purchase or any system of payment by instalment; (iv) a tax on the transaction of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable considerations; (v) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash or deferred payment or other valuable consideration, and lastly (vi) a tax on the supply by way of or as part of any service or in any other manner whatsoever of goods being food or any other article for human consumption or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cking material' for a price might be inferred, the use of 'packing materials' by the Company must be regarded as part of execution of contract for redrying and the fact that the tobacco delivered by the constituent was taken away with the 'packing material' will not justify an inference that there was an intention to sell the 'packing material'." In Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC), the question arose about the price content of a sale of cement which was subject to Cement Control Order, 1967. The Control Order had devised that no dealer could sell cement at a price exceeding ₹ 214.65 per metric tonne "free on rail, destination railway station" plus the excise duty paid thereon. The assessee despatched cement to the purchasers, prepared invoices showing "free on rail destination railway station" price of the cement despatched, added to it the amount representing excise duty and packing charges and then deducted from that amount, the railway freight to be paid by the purchasers. The assessee did not charge in the invoices sales tax on the amount of railway freight, but in order to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers to pay the excise duty directly to the Excise Department or to the State exchequer for obtaining distillery passes for release of liquor and on presentation of the same the bills of sales or invoices were used to be prepared by the distillery showing the price of liquor but excluding excise duty. The assessee contended that when the excise duty does not come into the common till of the assessee and it does not become part of the running capital, it does not constitute turnover. This contention was not accepted by the Supreme Court finding that the incidence of excise duty is directly relatable to manufacture. Payment of excise duty is the primary and exclusive obligation of the manufacturer and is a condition precedent to the removal of the liquor from the distillery. So when payment is made under a contract or arrangement by any other person, or when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the Excise Authorities or to the State exchequer, it would amount to meeting of the obligation of the manufacturer and nothing more. According to the normal commercial practice, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell, were considered to be part of the sale price and where the amount paid to seller was beyond the scope of agreement to sell it was held to be not part of the price component of "sale of goods" and not taxable. However, none of the cases laid down that the tax on sale of goods under entry No. 54 can be levied on something not chargeable from purchaser by the seller, parties to contract, by considering it to be a price, if price is taken to be measure of tax to which rate of tax is to be applied. From the aforesaid discussion, the principle which can be well-settled is; firstly that the term "sale of goods" in entry 54, List II has the same meaning as sale defined under the Sale of Goods Act, 1930 and that the State Legislature cannot enlarge the meaning of sale so as to tax a transaction which is not sale within the meaning of Act of 1930. Clause (29A) in article 366 gave extended meaning to "tax on sale or purchase of goods" to include certain transactions within its ambit which had otherwise been held to be not falling within precincts of sale of goods as discussed above.However, beyond such extended meaning, the principle still remains the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily fixed and the stock-holder was not entitled to and did not charge more are sufficient to enable us to come to the conclusion that the Central sales tax paid under the provisions of the Iron and Steel (Control) Notification did not form part of the price paid by the customer to the assessee." As a result, the rate of tax came to be related to what could properly constitute price component of sale in view of the provisions of the Price Control Order. This case is more akin to K.L. Johar's case [1965] 16 STC 213 (SC), in which in respect of the second sale under a hire-purchase agreement, the court confined the levy of tax to that part of amount which could properly be related as consideration for transfer of property in goods by excluding that part of amount which properly be said to be charged by the financier from the buyer as hire for use of such goods before property in them actually passes to the buyer. This case is an authority about what can be or cannot be considered as part of price component of sale. But it does not lay down that rate of tax can be applied to any such amount as measure which is not the component of taxable sale as price. The next decision re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Excise Act provided that where the price is fixed under any statutory provision that has to be taken as the price for the purpose of valuing the goods for the purpose of levy of excise duty. The Excise Authorities have sought to levy the duty on higher amount by adding to maximum retail price the extra amount charged by the assessee. The assessee has urged that excess amount was charged by him for the job-work done by the assessee. He has contended that when statute ordained what shall be value of goods for the purpose of levy of duty, the amount actually charged by the assessee cannot be relevant. The court agreed with the contention of the assessee that by virtue of the proviso to section 4A, a legal fiction has been created that the price fixed under the Control Order has to be taken as normal value of goods. It is urged that by parity of reason, in the instant case, the price fixed by the notification dated 18th October, 1997 can be taken as the normal price of the sale by wholeseller to retailers in the case of drugs and medicines. Obviously, the element of determination of price element of a sale transaction is absent in the case of levy of excise duty on goods ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an essential component of the subject of tax. For that purpose, the decision is not of much assistance for deciding the controversy before us. The other decisions which have been referred to by the learned counsel for the Revenue are (i) A. G. Varadarajulu v. State of Tamil Nadu AIR 1998 SC 1388. The decision relates dealing with Stridhan. The case has hardly any relevance to the controversy raised in this case. So also the decision rendered by the Supreme Court in (ii) H. H. Maharajadhiraj Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India AIR 1971 SC 530, which concerns the abolition of privy purses, does not offer any assistance in deciding the controversy raised before us. In the like way, the learned counsel for the Revenue has referred to an unreported judgment by this court rendered by a learned single Judge in Purohit Swaroop Narain v. State of Rajasthan [S. B. C. Writ Petition No, 40 of 1968, decided on September 24, 1970]. It was a case arising under the Rajasthan Land Reforms and Resumption of Jagir Act, 1952 seeking a mandamus for implementing and executing an order passed by the Khudkast Commissioner in favour of the petitioner. We see no relevance of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case, the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on a fair construction of the provisions of a particular Act." The court found that the machinery providing for collection of duty from the consignee, had such nexus with subject of tax, viz., goods manufactured in India and therefore the duty collected from the consignee does not lose its character as excise duty payable on manufacture of goods. It may be noticed that it was also a case in which the taxing event was one which did not change with the consignment of goods and the levy was directly connected with the taxing event namely, the manufacture of the goods by the manufacturer or producer though it was ultimately collected from the consignee to whom ultimately the goods were delivered at the destination. The measure of tax to which rate of tax was to be applied remained the value of the goods manufactured and was not divorced from the "tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays' is an adjectival clause qualifying goods and passengers, that is to say, it is goods and passengers of the said description that have to be taxed under this entry. Nevertheless, it is obvious that the goods as such cannot pay taxes, and so, taxes levied on goods have to be recovered from some persons, and these persons must have an intimate or direct connection or nexus with the goods before they can be called upon to pay the taxes in respect of the carried goods." All these cases in this connection bring out two principles very clearly. Firstly that power to tax on a particular subject must emanate from the provisions of the Constitution. Secondly, the machinery provision for levy and collection of tax must be integrally connected and having nexus with the subject of tax. Once the machinery provisions for levy and collection loses nexus with the subject of tax, it may not be permissible for the Legislature to enact such a provision. Nexus between taxing event and measure of tax : Having examined the meaning of expression "sale or purchase of goods" in entry 54 of List II of the Seventh Schedule and the concept of price component of sale, the next questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the measure to which rate is to be applied so that liability can stand determined ex-hypothesi on occurrence of taxing event without any hiatus. Computation and collection may take place later on. Charge having been clearly authorised, the machinery for computation and modes of recovery can be provided by Legislature in its discretion at convenient stage and place. However, charging provision must strictly conform to the subject on which legislation is authorised by the Constitution to impose tax. The Federal Court in re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1938] 1 STC 1 ; AIR 1939 FC 1, found it to be quite complex to arrive at the true nature of "tax on sale of goods" not only in distinguishing it from a duty of excise but also from the "turnover tax" or "sales tax". In delineating the distinction, Sulaiman J. in his opinion said that tax on sale of goods necessarily must be a tax imposed at the time of sale of goods. In Province of Madras v. Boddu Paidanna and Sons [1942] 1 STC 104 (FC) ; AIR 1942 FC 33, while considering the difference between sales tax and the excise duty, considering the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. v. State of Andhra Pradesh [1971] 28 STC 599 ; [1971] 2 SCC 650, in which the matter arose under the Andhra Pradesh General Sales Tax Act, 1956. The court emphasised that charge comes into existence as soon as taxing event takes place. That is not postponed later. It was said in relation to levy of purchase tax : ". . . . Hence the turnover relating to the purchases in question became charged with the liability to pay tax as soon as those purchases were made by the assessee-millers.....This means that as soon as a first miller purchases groundnut the turnover relating to that purchase, the question of exemption apart, becomes liable to tax." A five-Judge Bench of the Supreme Court in Gangs Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 ; [1980] 1 SCC 223, has considered the aspect in some detail. The question has arisen in a group of appeals arising from a common demand for tax by the State of Uttar Pradesh as to the basis of levy once a transaction is held to be a transaction of sale. The court said, "Tax on sale or purchase must be on the occurrence of a taxing event of sale transaction." The apex Court in Govind Saran Gangs Saran v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property.....Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration." The court while commended greater freedom in adopting measure of the tax to be assessed by its own standard and administrative convenience and other factors may influence the stage at which the levy may be collected and there may be deviation in contours of measure of tax, but did not countenance it to be divorced from the nature of tax. The court said : "Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy." With these premise the court found that while nature of an excise is indicated by the fact that it is imposed in respect of manufacture or production of an article, the point at which it is collected is not determined by the point of time when manufacture is completed but will rest on consideration of administrative convenience and that generally it is collected wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory gate could not be the basis of excise duty, as it will be removed from the character of excise duty, is the clear ratio emerging from Bombay Tyre's case AIR 1984 SC 420. This principle was further succinctly stated by the apex Court in a very recent decision in Commissioner of Central Excise v. Chhata Sugar Co. Ltd. [2004] 3 SCC 466. Considering the provisions of the Central Excise Act, 1944, the court said : "Section 3(1) of the Central Excise Act, 1944 is a charging section, which creates the liability to pay the excise duty on the goods produced or manufactured in India and the said sub-section clearly indicates the nature and character of the duty, namely, that it is a tax on production and manufacture of goods, while section 4 is in the nature of machinery provision and, therefore, anything said therein must be read so as to carry out the basic concept of excise duty." It was a case in which Revenue sought to include in assessable value of excisable goods, administrative charges collected on sale of molasses under the U. P. Sheera Niyantaran Adhiniyam, 1964. Rejecting the contention of Revenue, the court said that administrative charges in question wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent of such sale is an essential part of the taxing event. Therefore, the question does arise whether a particular taxing event of sale could be subjected to tax at the prescribed rate to be measured with such price which is not the component of the transaction of sale, which has attracted the sales tax. So far as persons connected with sale of goods is concerned they are buyers and purchasers, common parties to sale. The person who can be identified for collecting the tax may be either of them. The tax may be levied on either the seller or the purchaser. Measure of tax may be related to goods. The other component of sale is the price of goods sold. Either of can provide measure of tax. But measure vis-a-vis goods must be of goods which are subject to taxable transaction and so also if price of goods is to be measure to which rate is applied, it must be constituent of such sale which becomes taxable, or relatable to compliment of such sale. Unlike excise duty, where levy is on goods manufactured, in the case of tax on sale of goods, the price cannot be considered as a conceptual idea, which can be defined independently. Price and sale are not conceptual ideas but carry definite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) ; [1980] 1 SCC 223 : ".....It is a superstition, cultivated by familiarity, to consider that all sales tax must necessarily have nexus with the price of the commodity. of course, price as basis is not only usual but also safe to avoid uneven, unequal burdens, although it is conceivable that a Legislature can regard prices which fluctuate frequently as too impractical to tailor the purchase tax. It may even be, in rare cases, iniquitous to link purchase tax with price, if more sensible bases can be found." It was a case in which weight of the commodity was made the basis for levy of the tax. But, price of goods was approved to be usual meaning of levy of tax on sale of goods. It does not deviate from basic principle that a tax of any nature is determined ex hypothesi on occurrence of taxing event. Its actual computation and collection takes place later on through the machinery provided. However, the determination of charge ex hypothesi instantly on occurrence of taxing event which inheres into it that measure of tax is integrally connected with occurrence of taxing event and is not postponed to a later date. Thus, primarily the rate of tax relates to measure of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rather than its value in money. The issue which the court was considering was the levy of tax on sale of sugarcane and the court found that weight of cane which has sucrose contents have a close nexus with price although theoretically they may appear unconnected and consequently the levy of tax with reference to weight of sugarcane was held to be a permissible hypothesis for determining the tax. In the case of Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC) ; AIR 1993 SC 1048, levy of purchase tax at the last point sale within the State by a dealer/manufacturer who has sold the goods manufactured by him in the course of inter-State trade and commerce, on the purchase price of the raw materials, was the subject of challenge. The contention has been raised before the Supreme Court that since tax was leviable in cases where the goods manufactured were not sold in the State, it amounted to levy of excise duty on manufacture though named as purchase tax. In holding that levy was essentially a tax on purchase of goods within the State, one of the factors which weighed with the Supreme Court was that the levy was upon the purchase price of the raw material and not upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xus to the subject of tax so that liability stands determined ex hypothesi on occurrence of taxing event. The question, therefore, which needs to be considered at this stage is whether the measure to which rate of tax is to be applied on single point transaction of sale of any formulation by the wholesaler to the retailer can be something notional which is not related to subject of tax or to say in other words, whether MRP to be chargeable subsequent to taxing event by a retailer when he sells the same goods to consumer can provide a basis which has a nexus with taxable event to provide a valid measure to which rate of tax can be applied. It may be noticed that in any of the cases to which reference has been made, the question really did not fall for consideration whether there can be any other basis than the actual sale price or price fixed for such sale by any statute or actual weight of the goods sold for measuring the tax on the transaction of sale of goods in respect of any particular commodity or commodities. Nor it fell for consideration that if the total turnover is considered to be measure to which rate of tax is to be applied for determining the tax ex hyphothesi when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd principle is settled that price components of sale transaction is that total amount which is paid or becomes payable by the purchaser to the seller of goods in pursuance of the contract of sale and it alone can be termed as price of such sale which attracts charge. (iv) Any sum de hors the contract of sale cannot be termed as price component of sale transaction which becomes subject of tax. (v) A transaction which has not taken place but may take place in future cannot be subject of tax under entry 54 of List II of the Seventh Schedule though may become subject of levy, when it takes place in fact. In the context of meaning assigned to expression "sale of goods" or price or consideration element of such "sale of goods" as taxable event, the conclusion that can fairly be reached is that for the taxing event of sale, if the price is to be the basis for measuring tax, it must relate to actual transaction of sale that becomes subject of tax and not to a different transaction that may take place in future at a price. It amounts to determine fictionally the price element of completed sale which becomes chargeable to tax with reference to price that may be charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. For the present, the price to which rate of tax is sought to be applied to a sale by a wholesaler to a retailer is neither the price agreed upon by the parties to the contract of taxable sale to which charge is attracted nor flows from the DCO under which also, it is the price of formulation before end sale is to be determined within prescribed limits. Section 4A deals with levy of tax on specified goods as may be notified in relation to which it is required under some statutory provision to declare on the package thereof the retail price of such goods. The commodities sold in packages is required under section 39 of the Standard of Weight and Measures Act, 1976 to declare on packaging the unit of weight, the weight of packed commodity and sale price thereof. Similar provision may be operative for other commodities in terms of orders issued under Essential Commodities Act, as is in the case of Drugs (Price Control) Order, 1995 with which we are concerned. Whether prices are to be fixed under statutes or by the manufacturer, in the absence of any price fixation by controlling authority, the usual form of declaration is about MRP chargeable or price not to exceed- It may be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly to consumers but makes their sales to retailers. Obviously, the price ingredient of such sale is not the MRP published on package but less than it leaving room for trade margin. Such margin limit is fixed in case of scheduled drugs by DPC itself. In non-scheduled formulations, it depends purely within the domain of agreement between contracting parties, within MRP limit. It will be relevant here to notice certain provisions of the Rajasthan Sales Tax Act, 1994 other than the provisions of section 4A and the provisions of Drugs (Price Control) Order, 1995 under which the maximum retail price (MRP) is fixed. The general scheme of charging provision of the Rajasthan Sales Tax Act, 1994 : The charging section 4 ordains that the tax payable by a dealer under the Act of 1994, shall be at single point in the series of sales by successive dealers, as may be prescribed and shall be levied at such rates not exceeding fifty per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette. Thus, making clear that there is no multi-point tax within the State and the tax is levied on the first point sale within the State in a series of sales and tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of timber a single point tax was leviable. When the first point sale took place, it was taxable. Subsequently, said sales were exempted retrospectively. Revenue authorities then sought to tax subsequent sales that took place in M. P. The court rejected the contentions by holding that subsequent sale when took place did not attract tax. Subsequent exemption of first sale cannot automatically result in shifting of tax liability to subsequent sale. It was said : "....as the law stood at the relevant time, the sales of timber by the Madhya Pradesh Forest Department were the first sales, which were not exempt from the levy of sales tax. Hence when the taxing events took place, namely, when the sales in question took place, the assessee was not liable to pay any tax in respect of those sales, as the sales effected by him were second sales." The admitted position is that the sales made by the wholesalers to the retailers are the first point sales, within the State inviting the charge of tax under section 4 and the taxable turnover of the subsequent dealers, viz., the retailers or sub-retailers shall not include the turnover of sale of goods which had already suffered tax at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under : "19. Price of formulations sold to the dealer.-(1) A manufacturer, distributor or wholesaler shall sell a formulation to a retailer, unless otherwise permitted under the provisions of this Order or any Order made thereunder, at a price equal to the retail price, as specified by an Order or notified by the Government (excluding excise duty, if any), minus sixteen per cent thereof in the case of Scheduled drugs." In other words, while MRP is fixed for the purpose that no retailer shall refuse to sell a drug to a customer and shall not charge price exceeding MRP fixed under the Order plus local taxes, so also maximum price is fixed above which goods will not be sold to retailers by ordaining that no manufacturer, distributor or wholesaler shall fix the price exceeding 16 per cent less than the maximum retail price. For example if the maximum retail price for a drug to be sold by a retailer to a customer is fixed at As. 100, the wholesaler, manufacturer, distributor or wholesaler shall not sell a formulation to a retailer at a price exceeding As. 100-16=As. 84. Thus, the maximum price at which a wholesaler, distributor or manufacturer can sell the formulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le which has not come into existence and to allow the future transaction which under entry 54 of List II of the Seventh Schedule is not permissible. Another distinguishing feature to be kept in mind is that centre point of legislation under entry 54 of List II of the Seventh Schedule is "sale" in contrast with central point of legislation under entry 84 of List I of the Seventh Schedule is "Goods manufactured or produced". While basic nexus of levy in the former is sale of specified goods, in the latter it is goods manufactured or produced in India. The levy of tax on sale of goods is not a tax on goods simpliciter. One taxing event cannot be subjected to tax with reference to another taxing event which has not even taken place and may not ultimately take place at all in relation to the goods in question and which under the statute authorising levy is not subject to tax. Every transaction of sale is independent and can be subjected to levy of tax and the components and the measure which can make the tax levy effective must have nexus with the taxable event. The point of collection and levy of tax may be shifted but the essential feature of the levy of tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said : "It must be borne in mind that Central excise duty cannot be equated with sales tax. They have different connotations and apply in different situations. Central excise duty is chargeable on the excisable goods and not on the goods which are not excisable. Thus, a 'goods' which is not excisable if transplanted into a goods which is excisable would not together make the same excisable goods so as to make the assessee liable to pay excise duty on the combined value of both. Excise duty, in other words, would be leviable only on the goods which answer the definition of 'excisable goods' and satisfy the requirement of section 3. A machinery provision contained in section 4 and that too in the Explanation contained therein by way of definition of 'transaction value' can neither override the charging provision nor by reason thereof a 'goods' which is not excisable would become an excisable one only because one is fitted into the other, unless the context otherwise requires." This illustrates the point that non-taxable subject cannot be transplanted into taxable subject to make the increased value chargeable to tax by taking it a measure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in the Voltas' case [1973] 2 SCR 1089 ; AIR 1973 SC 225 ; 1973 Tax LR 1710." It may be relevant to recall here that the Supreme Court in Hotel Balaji's case [1993] 88 STC 98 (SC) ; AIR 1993 SC 1048, also held that where a tax was levied as a purchase tax and was confined to the purchase price paid by the buyer, and was not chargeable at the price at which the end-product was sold later, it had retained its character as a tax on purchase. Similarly, if the taxing event is the single point sale and first point sale in the series of transactions of sale is the taxable event which is authorised by law to be subject to levy of sale or purchase tax, whether the tax is collected at that point or later, the component of that taxing event can alone furnish the nexus for applying the rate of tax whether it may be related to the quantities of goods sold or it may be the price for which the goods have been sold and purchased. But if one wants to travel beyond the subject-matter of taxing event, it would be a different taxing event which would be subject to tax. Similarly Supreme Court in ACER India Ltd.'s case [2004] 137 STC 596 (SC) ; [2004] 3 RC 421 (SC) ; [2004] 8 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es what pursuance in respect of which properties are liable, (ii) Next thing is the assessment. Liability does not depend on assessment, that ex hypothesi has already been fixed. But assessment particularises the exact sum which a person is liable to pay. (iii) Lastly, come the method of recovery if the person taxed does not voluntarily pay. H. The components which enters into tax are well known : (i) The first is the character of the imposition known by its nature which transpires attracting the levy, (ii) The second is a dear communication of the person on whom the levy is imposed and which is obliged to pay the tax. (iii) The third is rate at which the tax is imposed and the (iv) fourth is the measure or value to which the rate is applied for computing the tax liability. I. Decided cases establish a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax. J. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. K. In any provision in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price component of sale transaction from a manufacturer, distributor or wholesaler to retailer cannot be more than as provided under paragraph 19 of the order for scheduled drugs, though the same is not required to be published on package or container. (iii) Such price has to keep at least 16 per cent profit margin for the retailer. This is devised by prescribing the price chargeable by wholesaler to be MRP minus margin of retailers profit. An important aspect of tax on sale of goods is that no tax is leviable until sale to be taxed is completed. Therefore, price as a measure of tax to quantify the tax on such sale may include all incidental and ancillary expenses or charges until sale is complete by passing of title in goods to the buyer. But it cannot include anything which does not become part of consideration received or receivable by the seller for such sale. If any amount can be named by Legislature on which rate of tax on sale of goods is to be applied, irrespective of its connection with completed sale, it will lose its character as tax on sale of goods inasmuch as fixing any sum as measure de hors the transaction of sale to be taxed will reduce the basic concept of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale. In a given case, subsequent sale to the taxable event may be an inter-State sale or a sale outside State. MRP may not at all become chargeable in the State to ever become subject of tax. Similarly, if the first point sale in the State is inter-State sale, the rate fixed under two enactment will be to different measure in respect of two identical transaction by the same dealer. Therefore, the principle that tax may be collected in advance before the event takes place or subsequent stage cannot be applied to the case of tax on single point sale of goods in a series of sale transactions. In such event, if it is justified collection of tax on sale when sale takes place between wholesaler and the retailer, it amounts to tax a subject which has not come into existence. On the other hand, if it is taken to be a mere measure of tax, and not the convenient collection of tax at earlier point, the measure of tax is by engrafting an element of event which is not taxable. In such event, as per principle enunciated in ACER India Ltd. [2004] 137 STC 596 (SC) ; [2004] 3 RC 421 (SC) ; [2004] 8 SCC 173, it is not permissible. In this connection, the principle has clearly been stated in ACER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the subject of sale. Permitting this means permitting legislation to insert one or other of the essential ingredients of sale by creating legal fiction, which in fact is not ingredient of sale which may become subject of tax. This in turn will result in extending the meaning of "sale" beyond what is meant by sale within the meaning of Act of 1930. As discussed above, it is not permissible for the State Legislature to enlarge the definition of "sale" beyond what is meant under the Indian Sale of Goods Act for taxing purposes under entry 54 of List II of the Seventh Schedule. It may be viewed from another aspect. Section 4A envisages tax on a price chargeable on future sale only in respect of sale of such goods where MRP is published on package or container. The object is stated to be that in case of tax on first point sale or at earlier point the end-buyer pays much more then the buyer at such earlier stage. With this object to choose only the MRP branded goods have no nexus, to depart from normal levy in respect of sale of other commodities by departing from normal rules of computing taxable turnover. The end-consumer in the case of single point tax in a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of such persons existed only for short period, and after period of contract in many cases it was not even possible to trace them and many were found to be dealing benami. Section 44AC occurred in Chapter TV of the Act dealing with computation of income. Section 44AC(1) determines profits and gains of the year from trading of certain specified goods like liquor at a particular percentage of package price specified therein. The object of said provision was explained in a memorandum as "with a view to combat large scale tax evasion by person deriving income from such businesses where the bill seeks to insert new section 44AC to provide for determination of income in such cases". About section 206C it was stated that "it is proposed to introduce a new section 206C to provide that any person, being a seller referred to in section 44AC shall collect income-tax of a sum equal to 20 per cent of the amount paid or payable by the buyer as increased by a surcharge for the purposes of the union...." The validity of two provisions were challenged before various High Courts. All the High Courts upheld the competence of Parliament to enact section 44AC and section 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar assessment altogether. After the tax is collected in the manner provided by section 206C, a regular assessment will be made where the profits and gains of business in specified goods will be ascertained in accordance with sections 28 to 43C." The court did not countenance substitution of a fictional income as a subject of tax for the purpose of determining tax but confined the operation of it as machinery provision for the purpose of deducting tax under section 206C which was held to be measure of advance tax, subject to regular assessment. However, it clearly did not countenance substitution of subject of tax by leaving normal provision for determining real income which is subject of tax. Deviation from normal provision for determining subject of tax only in certain commodities was held to be not within the constitutional limits but violative of article 14 of the Constitution. Before us, the specific case of the respondents is also that section 4A(1) is an adjunct to charging provision contained in section 4 of the Rajasthan Sales Tax Act, 1994. Hence, the measure envisaged under section 4A cannot be divorced from point of taxable sale and from the import of turnover and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination falling within the domain of legislative scheme. Price of goods at any stage is only one of the mode by which value can be determined. But the subject of "tax on sale or purchase of goods" is the "sale". Price as essential element of sale has definite legal connotation and is not to be determined de hors the sale itself on any conceptual standards. It is part of it as consideration paid or agreed to be paid. Therefore, on the first point sale, it is the whole constituent factors of sale that remains the subject of tax. Levying tax on such sale with a factor which is connected with last point sale divorces the levy from the basic subject of sale on which tax can be levied. However, as has been analysed above that each successive sale becomes a new taxing event, providing an independent subject which can be taxed and one sale cannot be engrafted in another for the purpose of levy. It is open for the legislation to choose to have recourse to multi-point levy or single point levy. In case it decides to levy a single point tax, the point at which the sale is to be taxed is also for the legislation to decide and it is the sale which occurs at the point ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
